CGD drawbacks of using a spousal trust (p. 15)
[A] spousal trust has two drawbacks that may lead the testator to consider having the spouse own the property directly:
1) Any capital gains deduction (CGD) that the surviving spouse might have been able to claim can be claimed only in circumstances where the spousal trust sells qualified property during the lifetime of the spouse (which, as discussed below, may defeat the testator's intentions).
2) There is no ability to use the spouse's CGD on death.
Repeal of s. 110.6(12) rule (p. 15)
Before 2016, any income realized on this deemed disposition was payable to the spousal trust, but subsection 110.6(12) allowed the trust to utilize the unused CGD of the deceased beneficiary in computing its taxable income for the taxation year in which the beneficiary died….
[S]ubsection 110.6(12) was repealed for 2016 and later taxation years.
Use of a spousal trust now precludes use of the spouse’s capital gains deduction for trust property (p.15)
Two suggested drawbacks of using a spousal trust are that (i) any capital gains deduction (CGD) otherwise available to the surviving spouse can only be claimed where the spousal trust sells qualified property during the lifetime of the spouse (which often would defeat the testator's intentions), and (ii) having regard to the repeal of s. 110.6(12) for 2016 and subsequent taxation years, there is no ability to use the spouse's CGD on death.
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